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ECONOMICS – FINANCE – WORLD NEWS – GREEK DEBT

No growth for Europe, Starbucks wants your love back

German central bank has cut its economic growth forecast for 2013 from 1.6% (June estimate) to 0.4%. Estimates for 2014 are back at 1.9%. Oh well, so we’ll wait another year and pour more money into Europe’s open wounds. No biggie. Yesterday, the ECB said if the recovery was to kick in in the second half of 2013 as hoped [Draghi would have said ‘expected’], the eurozone will grow 1.2% in 2014read article

Also in Germany, financial regulator BaFin sat in on Deutsche Bank’s audit committee meetings during the financial crisis and should therefore have known about the skewed numbers that may have saved the bank from requiring a government bailout. The SEC, who’s investigating the derivative mis-valuations, is bound to be pissed off. read article

When Starbucks started to write your name onto its white paper cups, that was an effort to make you feel more at home, more individually loved in each stock-standard store. Then the company was part of a tax avoidance case worth millions of pounds. Today, Starbucks issued an open letter from its UK managing director, promising to pay up to £20m more in corporate tax just to be nice. Of course, that is an image-protecting half-truth, because Starbucks, Google and Amazon had become the poster children of tax avoidance in the UK. Yet, paying so much money for a one-page add just to remind me that there will always be a barrister barista waiting for me, almost got me walking into a Starbucks this morning. Then I remembered that the coffee’s not that good.

In fiscal cliff news, everybody has returned to the negotiation table, or so it seems. On that note, a depressing visualization of US debt.

The US is also awaiting jobs data that will be completely distorted by Sandy. Meanwhile, Hillary Clinton is convinced that Russia is planning a new Soviet Union and must be stopped. read article

And finally, bidding farewell to the Financial Times Deutschland.

Weekend reading

– The New Yorker goes for lunch with Warren Buffetread article

– The FT got balls: In this opinion piece on the Autumn Statement, George Osborne became G-Dawgread article (click here for a picture of the print version)

– Why Dilma Rousseff needs a new economic advisorread article

– The US could create jobs by building a Death Starread article

Have a good one.

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Black Friday after Black Thursday; FT Deutschland shuts down

It’s Black Friday, THE day in the world of retail, except some companies started early this time around. Firms included Wal-MartTarget and Toys”R”Us offered their traditional Black Friday discounts on Thanksgiving day itself. What was that good for? MarketBeat says it raised the bar: on expectations and stock prices.

On EU issues, this summary says it all:

First it was Greece, which Europe couldn’t “resolve” on Monday night despite Juncker’s vocal promises to the contrary, and was embarrasses into postponing until next Monday when everything will surely be fixed. Now, the time has come to delay the “resolution” of the EU budget, which was supposed to be implement[ed] last night, then a decision was delayed until today, and now every European government leader is saying a new meeting will likely be needed to resolve the budget impasse.

The FT reports that the deadlock between the EU’s North and South could delay a budget deal until the new year. So far, rumors say the overall size of the budget, approximately €1tn hasn’t changed – much to the displeasure of the UK and Sweden. As mentioned before, the European common agriculture policy takes the biggest share of the budget, and received an additioanl €7.7bn.

In other news, Bolivia has been invited to join Mercosurthe association between Brazil, Argentina, Paraguay, Uruguay and Venezuela, while Argentina has criticized yesterday’s decision of a New Yorker judge that the country has to proceed with its debt repayments and reimbursements to its hedge fund bond holders, sparking new fears about another South American defaultread article

The gender battle about the next appointment to the ECB’s board has been won by Yves Mersch of Luxemburg. Politically, Mersch is part of the German anti-inflation party. The German edition of the Financial Times is officially shutting down on 7 December, slashing 364 jobs in Hamburg, Frankfurt and offices abroad. I am deeply upset.

Weekend reading:

– Deutsche Bank and the [unbiased] case for the “universal” mega bankread article

– Is Ben Bernanke the new Wizard of Ozread article

– Gaza in an infographic, read article

– Inflation measured on the price of turkeyread article

Have a good one.

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“The ECB is by and large done [trying to help you]”

The moment when it’s not the Greeks who don’t live up to their promises: the troika wants to delay the next debt tranche despite the deal on austerity measures, to wait for a full report on compliance with the bailout terms. At the core of the issue is the €5bn repayment due next week, but the next bailout tranche is also connected to a two-year extension to 2016 for Greek aid. So far, so bad. While the EU seems to be mainly concerned with the restructuring of debt that will never be repaid, the IMF worries whether Greece will ever return to growthread article

Mario Draghi, fed up, announced the ECB was done supporting Greece. And you can’t blame the man who has been waiting for Spain to make one, just one, phone call for the past two months, and who is being chased by German lawmakers scared of inflation. As a last act of kindness, he said the  €12-15bn profits the ECB made on the €55bn of Greek debt it owns should go back to the country itself.

Meanwhile, France is expected to slip into recession by the time the year comes to an end. In SpainIberia, which is owned by IAG, just as British Airways, will cut the airline’s 21,000-people workforce by a quarter in an effort to turn the loss-making business around. That’s just what Spain ordered. read article

The Telegraph broke a story saying that UK tax authorities got a hold of the details of every British HSBC client in Jersey. Mind you, Jersey is a tax-haven, population 98,000 (and most of them are accountants). The list of names was obtained from a whistle-blower, who didn’t get the memo that the EU whistle-blower-incentive is not actually in place yet. It features drug lords, weapon smugglers and fraudstersHSBC, of course, will have to pay between $1.5-2bn for breaching anti-money laundering rules in the US and Mexico. For those that remain sceptical of a whistle-blower from Jersey or the journalistic standards of the Telegraph:

Early viewers of what promises to be a trashy little mini-series with a stale mix of guns, drugs, sun-soaked beaches and tax cops, were left with one stand-out question on Friday: Does HSBC have just 4,388 Brits holding offshore accounts on this Channel island?

Weekend reading

– Interactive infographic for real GDP, unemployment and inflation developments in Europe, read article

– El-Erian’s 4-point plan to save the US economyread article

– The Asian way: economic stability in the 21st century, read article

– Democrats and Wall Street, version 2.0 read article

– From law to oil to Paris to … the new archbishop of Canterburyread article

Have a good one.

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Fixing Libor, fixing the law

After the worst of the storm has gone, the Financial Services Authority has announced its reform of Libor. Unfortunately, the quest for an alternative benchmarking index failed, and so the new-old-Libor will just use transaction data instead of banks’ estimates to calculate the London Inter-Bank Offered Rate. However, there is no rule on the publishing of said transaction data so far.The BBA, the British Banker’s Association, will be stripped of its responsibility for monitoring the rate, passing the job on to the FSA, at least for the interim. The BBA’s administrator role will be publicly tendered (apparently, Bloomberg has its own proposal).

Alphaville summarizes: more banks will be involved (i.e. transactions from more banks will be taken into account), rate submissions will be kept confidential for three months, daily fixings will be reduced to 20 (from 150 and five less for currencies), the FSA will approve every individual in the banks involved in submitting rates, banks will need to add an explanation/reasoning to their rate estimates, the BAA will be replaced and manipulation will become a crime.

The Spanish budget was announced, featuring all those expected austerity measures that are likely to infuriate the Spanish people. According to the new plan, government spending will be cut by 8.9%, while tax revenues are forecasted to rise by €5bn to €175bn in 2013, partly through an increase in sales tax. Although Spain’s Finance Minister Luis de Guindos said the EU had still not specified the terms and conditions of a possible bailout, the new budget follows many of Brussel’s recommendations.

Also on the budget bandwagon: France. In an effort to reduce the budget deficit, the FT calls it the harshest budget in 30 years. Despite the sensationalist sound of that, they may not be far off. Tax revenues will increase by €20bn, mostly through increased taxes on corporations and the upper income tax brackets. And yes, that includes the 75% marginal income tax rate on earnings above €1m. Most people who are subject to this tax increase will have left by now, or are heading to the airports as I type. At least, it spares France the kind of austerity measures and cuts that cause riots in other parts of Europe. For 2013, France’ debt to GDP ratio is expected to be 91.3%, with net debt issuance falling by €8bn [to €170bn] from this years rate. read article

With quarter three ending today, the spotlight turns to the US presidential election. According to the German Handelsblatt, George Soros put $1m towards Obama’s re-election last night. Gillian Tett writes in the FT’s Market Insight column that according to a recent study by Absolute Strategy Research shows that in terms of economic data, voters care most about real estate prices. Following the housing bubble and subprime mortgage crisis that tore holes in the US economy, this is little surprising.

Weekend reading:

– Gender debate: Heidi Miller (formerly JP Morgan) an how women are weakread article

– The US’ states of play: an election infographicread article

– China’s first aircraft carrierread article

– Popculture explosion: “Gangnam style” actually made it into BusinessWeek, read article

Have a good one.

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World economy is closed until further notice…

… apologies for any inconvenience caused.

Economic data from China and Japan show that things keep pointing down – though ‘down’ is a relative direction in the case of China as it really means the country grew at a slower pace and indicating that economic growth fell below 8% in Q2. Yet, both China’s PMI and Japan’s manufacturing index performed better than expected. US manufacturing data is due later in the day.

Eurozone unemployment has risen to 11.1%, its highest levels since records started in 1995 and 0.1% higher than in May. Spain is still leading the picture with more than 24%, followed by Greece with almost 22% and Portugal with 15%. Continuing with bad news, Finland and the Netherlands have declared to veto those undefined procedures leaders “agreed” on last week that would depress Italy’s and Spain’s borrowing rates. This regards the purchasing of bonds in the secondary market through both the EFSF and the ESM – the latte of which needs unanimous support from EU leaders. Square one.

But if you want to believe the Wall Street Journal, all of this will lose its relevance in exchange for new drama:

With government policy playing a greater-than-usual role in driving financial markets, investors are nervously eyeing the November U.S. presidential election and the year-end expiration of tax cuts and economic stimulus that could drive the U.S. economy into recession should Congress fail to step in.

So to sum up, Europe is closed until further notice, China’s clockwork is slowing down and the US is collectively scared of whatever there is to come in November. Q3 is going to be fun.

Surprisingly, a European authority is taking the side of the financial services industry for once: ESMA, the European Securities and Markets Authority, has launched an inquiry into how S&P, Moody’s and Fitch evaluate banks’ credit ratingsread article

Otherwise, Marcus Agius stepped down as chairman of Barclays, as a response to the Libor manipulation scandal that erupted last week. Here’s his comment on his departure. In a weird sort of defence of Barclays and a show-off of white-collar-crime-and-got-away-with-it, the Telegraph printed the holy grail of anecdotal evidence: an anonymous “insider from one of Britain’s biggest lenders” talking about how he used to manipulate the lending rate all the time… read article

And linking back to last week, remember how I said, half-seriously, I expected Citigroup and Nomura to join the bad-PR party of all those other banks drenched in scandal? Well, here you go, embezzlement (Citigroup) and insider trading (Nomura).

So long.

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The correlation between soccer and political power

At least now we know what it was really about… the peripheral problem children win the soccer and Europe agrees on the most egalitarian strategy yet, introduces eurobonds, makes Germany equal to Greece. In the words of Angela Merkel’s wonderful fake presence online:

A decisive solutions: using a fund that doesn’t exist to buy debt that won’t be repaid via a mechanism that hasn’t been agreed. #leadership

And right she is. The main outcome of last night’s negotiations is that the ESM fund, which doesn’t officially come into effect until July [and that’s just the scheduled time, who knows what will happen] will be able to recapitalize troubled banks directly, without messing with the country’s deficit. Naturally, this would be contingent on austerity-ish measures. Then, there was a rumor that the ESM bond program would only be limited to Spain, which may or may not be Merkel’s way of getting back at Italy (Che? NEIN!). And of course, there was the €120bn growth pact, mostly defined by its lack of definition, purpose and strategy, which Italy is set to block until short-term measures to depress bond yields come into play. read article

According to ZeroHedge the only important outcome is that there will be no additional money committed to any fund – here’s why.

But the bottom line, the question I want answered is this: who won? No-one seems to know, opinions differ from source to source. Maybe the score will be clearer tonight.

Another guessing game we could play today is just how large JP Morgan’s London-Whale-induced trading loss is really going to be. Dealbook went all out and called for $9bn yesterday, Reuters says it will amount to $4-6bn, the FT settles on $5bn.

Blackberry producer RIM, cut 5,000 jobs and pushed the introduction of its new operating system that was meant to come out this fall. All this is just a reminder for the private equity firms out there that this is a bargain waiting to happen. Or is it? read article

Otherwise, the US economy reported 1.9% economic growth in Q1 yesterday and Obama won another round in healthcare fight, with the Supreme Court ruling that fines for lacking health insurance under the new Medicaid plan from 2014 on are indeed not unconstitutional. read article

Weekend reading

– On the economics of giving blood, read article

– Pretending that the eurocrisis is over with the Atlantic, read article

– Recessionary shopping behavior, i.e. the lipstick-effect, read article

– The case for immigration/globalization, brought to you by the Economist which seems to be surprised at either, read article

As for next week [or the rest of “summer”], I’m expecting Citigroup and Nomura to be torn to shreds in the media, joining the other investment banks (just think muppets and whales and facebook…) in their public relations misery.

Have a good one.

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Would Murdoch want to be new Greek finmin?

So about Greece… I’m sorry, but it’s one of those days. Finance minister Rapanos resigned yesterday due to health issues and prime minister Samaras announced that he will not be able to fly for two months due to his eye problem. What the… Rapanos may be replaced by Yiannis Stournaras, professor of economics at the University of Athens and one of those who hasn’t fled the country yet. Both the details and results of his health check are yet to be disclosed.

Newscorp is looking into splitting the company into separate entertainment and publishing divisions. What does this mean? Well, the legitimacy of the WSJ’s report on the story is up for discussion, as the journal is of course part of Newscorp. But Murdoch could stay in control of both parts, only mitigating the storm around the British newspaper units that were involved in the phone-hacking scandals, and not actually solving the problem that a demerger should presumably address (namely Murdoch owning everything). More importantly, a split would make it harder for the publishing division to find investors, despite its prime newspaper assets, because its growing at a much slower pace than the entertainment branch. Not really surprising, you’re comparing the WSJ and the Times to 20th Century Fox here… come on.

A new proposition from Brussels authored by the presidents of the Commission, Central Bank, Eurogroup and Council (mostly to set the stage for the summit later this week): In Dan Davies words [blatantly stolen from Twitter, yay for 140 characters]:

1. Pan-European single banking regulator – ie completely irrelevant to crisis, pure and simple power grab.

2. European deposit insurance & resolution schemes, backed by ESM – ie repurposing of existing fund, not in treaty. Nothing from ECB

3. “pooling of decision making on budgets” ie power grab

4. “issuance of common debt could be explored” – ie, jumping someone else’s train of ERF and Eurobills. No original work

5. “A full fiscal union” and what’s the most urgent issue about that? yup “it would need a central budget“.

6. “Towards an integrated economic policy framework” – equal parts sameold “stability and convergence” guff and power grab.

7. “Oh yeah, democratic legitimacy”. Insultingly brief 2 paragraph section, which just points you at Protocol 1 of TFEU.

(or read article)

In other European news, Cyprus has officially requested a bailout, the terms of which have not been finalized, but it’s like to be €8-10bn, and France is set to raise the minimum wage by 2% come July 1.

The woman in the news today is not Angela Merkel for a change, but Facebook’s Sheryl Sandberg, who is now director of the company’s board, which so far had only been comprised of men. Well done Sheryl, girl power and all that.

At last, a chart and a reason why we shouldn’t be looking forward to September: according to a study by Luc Laeven and Fabian Valencia of the IMF, which relies on 147 cases over 41 years, September is the month of banking crisesread article

So long.

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Remember when the Greek elections didn’t achieve anything?

(note: the headline regards the eurocrisis and not Greece by itself)

It’s funny how the lead up to some event is drenched in anticipation from virtually the entire world, but when it occurs the reaction is so unimpressive. In other words, Antonis Samaras can build a coalition on all he wants, all eyes are back on Spain [and Italy] and they were already yesterday.

So let’s go back to Spain. Yesterday, its bond yields exploded and stayed above 7%, and today, its short term borrowing costs (12-18 months) hit the highest levels since 1997. But that’s not all. The bad loans on the books of the country’s banks have reached the highest level in 10 years as well – 10 years ago, when the euro was introduced to make everything better…

ING said Spain would need another €250bn to get anywhere with its bank refinancing – €250bn the EFSF isn’t set out for. So then it goes back to the legal issue that is the ESM, which is not actually active yet and has different voting requirements from the EFSF. Here the ZeroHedge summary.

The bottom line seems to be this: while concerns used to focus on the willingness, or lack thereof, of European leaders to commit to strategy to battle the crisis, i.e. setting up the ESM, pushing eurobonds, injecting money here there and everywhere, it now (finally) shifted to a question of how much is actually possible. The answer is more or less unanimous: Spain can’t be paid for in the same way that Greece was. And we don’t even have to talk about Italy. So what are we going to do about it? Wrestle Angela Merkel down and force her to agree to eurobonds, i.e. piss off the one person who is paying for the whole charade (note: this is a simplification of actual circumstances)? Having said that, I’m pretty sure that Merkel knows exactly that she will have to give in to all the pressure unless she wants to foot a never-ending bill (see below).

In Greece, Pasok leader Evangelos Venizelos has allegedly expressed his support of NewDem leader Antonis Samaras, who is still in the process of pasting a coalition government together. And since Syriza said they’re out, Samaras just pitched another left-wing party, the Democratic Left, making the proposed government a center-center-left coalition. An agreement is meant to be reached today, and as we know Greeks are very precise and efficient people, so I’m taking this at face value (so far, the Democratic Left has not decided what to do). read article

In Mexico, the G20, first and foremost David Cameron, is pointing fingers at the bodiless mess that is European collective action. In Gideon Rachman’s words:

David Cameron is taking a break from irritating the Germans. Instead, he has decided to piss off the French.

It is going to be an entertaining week if this continues. The agreement that emerged from Monday’s meeting was to work on a “more integrated financial architecture” in Europe. I imagine Angela Merkel didn’t enjoy her stay.

Meanwhile, there are rumors that both Greece and Ireland will be granted a two-year extension of bailout terms, meaning forced austerity measures. Make a wild guess who’s not amused about that.

So long.

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Liberté, égalité and working until the age of 40

In France, the retirement age for long term workers (41.5 years of pension contributions) and mothers of 3+ children was lowered from 62 to 60 yesterday, because working 35 hours a week is hard and pension funds are doing super well right now because of the good economic conditions. read article

Meanwhile, French unemployment rose to 10%, which is still less than the eurozone average of 11% [in April].

In Spain, or in Brussels rather, we’re still waiting to hear anything more explicit than edging towards a solution, which has, however, not been agreed on yet, because nobody really wants to deviate from their positions. Essentially, that means that Rajoy is still not ready to call it a bailout, because he’s afraid of stigmatizing Spain’s banksread article

Otherwise, David Cameron is meeting Angie Merkel in Berlin today to spread the egalitarian word. He, as so many others, wants her to put more money forward for a bigger European firewall, agree to eurobonds and finally put her foot down and cut the soft talk. We shall see how well that goes. Cameron doesn’t exactly have a track record for being diplomatic when it comes to talking to his continental counterparts about meaningful things, just as Merkel hasn’t been proactive on the compromise front recently. My guess: a statement on how much both nations agree that urgent action is required to strengthen the banking system and the economy and revive organic growth within the next years. I.e. things we’ve heard before. Please disregard. read article

Here’s some analysis to Merkel’s isolated position in Europe and the world and how she got herself there. read article

“There is a sense of concern [in Europe],” said Maria Draghi at the ECB’s press conference yesterday. Oh really? Here’s every chart on the ECB you’ve ever dreamed of.

Another chart, this time for Greek unemployment by age group. Do not open if you have a history of depression. view chart 

And finally, the number of the day: £752,785

That is the average house price in central London as of April 2012.

So long.

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It’s fine, we have a flow chart

Well done, Ireland! The country voted ‘yes’ in the world’s most unnecessary referendum on the implementation of the European fiscal pact AND it got a pat on the back from the European Commission, saying the country met all conditions imposed in the scope of its €85bn bailout, i.e. it’s growing and its deficit is somewhat under control.

In the meantime, Spain got an extra year to reduce its deficit, because Germany felt generous this morning. read article

George Osborne is suing the EU, or rather ESMA, the European Securities and Markets Authority. The case: Osborne says the union has overstepped its mandate when they enforced a ban on short-selling. Curiously, he actually agrees with the regulation or at least with the reform of short-selling policies, but this, so Osborne, is about principle. Well, you have to pick your battles, but if this is the best one to fight is up for discussion. Get ready, this may be a ten-year lawsuit. read article

In other exciting news this morning: every single person with access to a Bloomberg terminal has probably stumbled upon Greek Drachma (Post Euro),Germany is being paid for borrowing money (2-year yields are negative) and Syriza is leading in the Greek polls again. Meanwhile,the European Central Bank is stressing the need for a common deposit insurance fund to prevent a run on banks, and Mario Draghi is also criticizing Angela Merkel‘s handling of the crisis once more, which makes for woes ahead in austerity-land.

The FT’s Martin Wolf had lunch with Paul Krugman, who barely promoted his new book while he was ranting about how we should all be more Keynesian. read article

Finally, here’s a flowchart for European crisis planning… bottom line: if you think you have a plan, you probably don’t.

Have a good long weekend [if you’re a UK resident, otherwise have fun at work on Monday and Tuesday…]!

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